The Argentine has made has made 175 appearances for City since signing from Espanyol in 2008, and has emerged as the club's first-choice right-back in recent seasons.
"I have been here for five years and it feels like home. Signing a contract extension with the club makes me feel very happy," he told the club's official website.
"I feel great here, I like the Premier League, and I think Manchester City are one of the clubs looking for success in the future. It is a club that is very well-organised and when you see that everything works well you want to be here."
Manuel Pellegrini takes charge of his first competitive game as City manager against Newcastle on Monday evening, and Zabaleta hopes it will be the start of a successful campaign.
"I think we have got a great squad, fantastic players and hopefully we can win something this year," he added.
"I am sure the fans will respond very well as always. They are a big support for the team week in week out, and hopefully at the end of the season the fans and players can celebrate with a trophy."